TMI Blog2014 (9) TMI 825X X X X Extracts X X X X X X X X Extracts X X X X ..... once the director places before the authority his reasons why it should be held that non-recovery cannot be attributed to any of the above three factors, the authority would have to examine such grounds and come to a conclusion in this respect - the lack of gross-negligence, misfeasance or breach of duty on the part of the directors is to be viewed in the context of non-recovery of the tax dues of the company - as long as the director establishes that the non-recovery of the tax cannot be attributed to his gross neglect, etc. his liability u/s 179(1) of the Act would not arise - in the absence of any consideration, the Assistant Commissioner could not have been ordered recovery of dues of the company from the director. The notice is totally silent as regards the satisfaction of the condition precedent for taking action u/s 179 of the Act, namely, that the tax dues cannot be recovered from the Company - the necessary prerequisite for resorting to the provisions of section 179 of the Act itself against the directors is not satisfied - nothing has been stated therein regarding any gross-negligence, misfeasance or breach of duty on the part of the petitioners due to which the tax d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs.18,72,597/- (iii) Bad debt Rs.2,32,277/- 6. Against the above assessment order, the Company preferred an appeal before the Commissioner of Income-tax (Appeals) [hereinafter referred to as CIT (Appeals), who deleted the amount of ₹ 18,72,597/- added towards outstanding sundry creditors and claim of bad debt of ₹ 2,32,277/- totaling to ₹ 21,04,874/-. Against the order of Commissioner (Appeals), both, the Company as well as the Department, went in appeal before the Tribunal. The Tribunal dismissed the appeal of the Company in respect of brought forward capital loss of ₹ 11,69,554/- and also dismissed the Department s appeal qua deletion of ₹ 18,72,597/- in respect of outstanding sundry creditors, but restored the issue of bad debt to the Assessing Officer. By an order dated 24.12.2010, the Assessing Officer allowed the claim of bad debt. As a result thereof, the disallowance of set-off of carried forward capital of ₹ 11,69,554/- remained intact and became the total income. Thereafter, by an order dated 28.3.2008, the Income Tax Officer imposed penalty of ₹ 4,29,811/- under section 27 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer has not addressed the issue from the perspective as laid down by this court in the case of Maganbhai Hansrajbhai Patel v. Assistant Commissioner of Income-Tax and another, (2013 ) 353 ITR 567 (Guj.), inasmuch as, there is no finding to the effect that there was any gross negligence, misfeasance or breach of duty on the part of the directors resulting into non-recovery of the tax dues of the private limited company where they were directors. On the contrary, the Assessing Officer has focused on the point as to whether the tax demand has arisen because of the inaction on the part of the directors. Referring to the reply to the notice under section 179 of the Act, it was pointed out that in view of the loss sustained by the Company, the petitioners had lost their investments in the form of share capital and unsecured loans given to the Company. It was submitted that, the Assessing Officer, in the order under section 179(1) of the Act has not even referred to the same nor has he given any reasons for rejecting the submissions put forth by the petitioners. It was, accordingly, urged that the impugned order is not in consonance with the provisions of section 179 of the Act and, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... within the prescribed time limit. That the delay in filing the return was on account of the fact that the company had stopped its manufacturing activities from 30.11.1999 and the staff had been retrenched. Nonetheless, the return under section 139(4) of the Act had been filed voluntarily. It was further stated that the petitioners, in view of the loss sustained by the Company, have lost their investments in the form of share capital and unsecured loans given to the Company. The respondent-Income Tax Officer, in the impugned order, has observed that in spite of all efforts, demand could not be recovered from the Company since it has closed down its activities since 1999. As regards the explanation given by the petitioners that there was no gross negligence, misfeasance or breach of duty on their part, the respondent has referred to the explanation given by the petitioners to the effect that the return of income for assessment year 2001-02 could not be filed before the due date for the reason that the Company has stopped its manufacturing activities from 30.11.1999 and the staff was retrenched. The respondent, however, was of the view that the argument put forth by the directors was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... private company whose tax dues have remained outstanding and the same cannot be recovered, any person who was a director of such a company at the relevant time would be liable to pay such dues. However, such liability can be avoided if it proves that the non-recovery cannot be attributed to the three factors mentioned in the said order. Thus, the responsibility to establish such facts is on the director. However, once the director places before the authority his reasons why it should be held that non-recovery cannot be attributed to any of the above three factors, the authority would have to examine such grounds and come to a conclusion in this respect. The court observed that the lack of gross-negligence, misfeasance or breach of duty on the part of the directors is to be viewed in the context of non-recovery of the tax dues of the company. In other words, as long as the director establishes that the nonrecovery of the tax cannot be attributed to his gross neglect, etc. his liability under section 179(1) of the Act would not arise. Here again the legislature advisedly used the word gross neglect and not a mere neglect on his part. The court observed that the entire focus and disc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reach of duty on the part of the petitioners due to which the tax dues of the Company could not be recovered. The respondent, has, therefore, passed the impugned order under section 179(1) of the Act against the directors in respect of alleged neglect on their part in the functioning of the Company due to which the demand in question has arisen and not on account of any gross neglect, misfeasance or breach of duty on their part in the nonrecovery of the dues of the Company. Thus, the very basis on which the respondent has proceeded, suffers from nonapplication of mind to the requirements for exercise of powers under section 179(1) of the Act. In the absence of any finding that non recovery of the tax due from the company can be attributed to any gross-negligence, misfeasance or breach of duty on the part of the petitioners, no order could have been made under section 179(1) of the Act for recovering the same from the directors. The upshot of the above discussion is that the impugned order being inconsistent with the provisions of section 179(1) of the Act, cannot be sustained. 15. For the foregoing reasons, the petition succeeds and is, accordingly, allowed. The impugned order d ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
